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As discovered by Linda B. Buck and Richard Axel (who were awarded the Nobel Prize in 2004), mammals generally have about 1000 genes for odor receptors. Of these genes, only a portion code for functional odor receptors. Humans have 347 functional odor receptor genes; the other genes have nonsense mutations. This number was determined by analyzing the genome in the Human Genome Project; the number may vary among ethnic groups, and does vary among individuals. For example, not all people can smell androstenone, a component of male sweat.

Each olfactory receptor neuron in the nose expresses only one functional odor receptor. Odor receptor nerve cells may function like a key-lock system: if the odor molecules can fit into the lock the nerve cell will respond. According to shape theory, each receptor detects a feature of the odor molecule. Weak-shape theory, known as odotope theory, suggests that different receptors detect only small pieces of molecules, and these minimal inputs are combined to create a larger olfactory perception (similar to the way visual perception is built up of smaller, information-poor sensations, combined and refined to create a detailed overall perception). An alternative theory, the vibration theory proposed by Luca Turin (1996, 2002), posits that odor receptors detect the frequencies of vibrations of odor molecules in the infrared range by electron tunnelling. The major predictions of this theory have been found lacking (Keller and Vosshall, 2004), though other studies disagree (citation needed).

The axons from all the thousands of cells expressing the same odor receptor converge in the olfactory bulb. Mitral cells in the olfactory bulb send the information about the individual features to other parts of the olfactory system in the brain, which puts together the features into a representation of the odor. Since most odor molecules have many individual features, the combination of features gives the olfactory system a broad range of odors that it can detect.

Odor information is easily stored in long term memory and has strong connections to emotional memory. This is possibly due to the olfactory system's close anatomical ties to the limbic system and hippocampus, areas of the brain that have long been known to be involved in emotion and place memory, respectively.

Some pheromones are detected by the olfactory system, although in many vertebrates pheromones are also detected by the vomeronasal organ, located in the vomer, between the nose and the mouth. Snakes use it to smell prey, sticking their tongue out and touching it to the organ. Some mammals make a face called flehmen to direct air to this organ.